Leases
We lease certain retail locations, warehouses, distribution centers, office space, land, equipment and software. Assets held under capital leases are included in property and equipment. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the date we take possession of the property. At lease inception, we determine the lease term by assuming the exercise of those renewal options that are reasonably assured. The exercise of lease renewal options is at our sole discretion. The lease term is used to determine whether a lease is capital or operating and is used to calculate straight-line rent expense. Additionally, the depreciable life of leased assets and leasehold improvements is limited by the expected lease term.
Rent expense is included in SG&A expenses. Some of our lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Certain leases require us to pay real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises. These expenses are classified in SG&A, consistent with similar costs for owned locations. Rent income received from tenants who rent properties is recorded as a reduction to SG&A expense.
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| | | | | | | | | |
Rent Expense (millions) | 2013 |
| 2012 |
| 2011 |
|
Property and equipment | $ | 194 |
| $ | 194 |
| $ | 193 |
|
Software | 33 |
| 33 |
| 33 |
|
Rent income (a) | (12 | ) | (85 | ) | (61 | ) |
Total rent expense | $ | 215 |
| $ | 142 |
| $ | 165 |
|
| |
(a) | Rent income in 2013, 2012, and 2011 includes $4 million, $75 million and $51 million, respectively, related to sites acquired in our Canadian leasehold acquisition that were being subleased back to Zellers for various terms, which all ended by March 31, 2013. |
Total capital lease interest expense was $116 million, $109 million and $69 million in 2013, 2012 and 2011, respectively, including interest expense on Canadian capitalized leases of $77 million, $78 million and $44 million, respectively, and is included within net interest expense on the Consolidated Statements of Operations.
Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 50 years. Certain leases also include options to purchase the leased property. Assets recorded under capital leases as of February 1, 2014 and February 2, 2013 were $2,106 million and $2,038 million, respectively.
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Future Minimum Lease Payments (millions) | Operating Leases (a) |
| Capital Leases (b) |
| Rent Income |
| Total |
|
2014 | $ | 187 |
| $ | 204 |
| $ | (6 | ) | $ | 385 |
|
2015 | 185 |
| 198 |
| (5 | ) | 378 |
|
2016 | 174 |
| 192 |
| (4 | ) | 362 |
|
2017 | 168 |
| 157 |
| (4 | ) | 321 |
|
2018 | 162 |
| 150 |
| (3 | ) | 309 |
|
After 2018 | 3,227 |
| 4,412 |
| (14 | ) | 7,625 |
|
Total future minimum lease payments | $ | 4,103 |
| $ | 5,313 |
| $ | (36 | ) | $ | 9,380 |
|
Less: Interest (c) | |
| (3,342 | ) | |
| |
|
Present value of future minimum capital lease payments (d) | |
| $ | 1,971 |
| |
| |
|
| |
(a) | Total contractual lease payments include $2,105 million related to options to extend lease terms that are reasonably assured of being exercised and also includes $135 million of legally binding minimum lease payments for stores that are expected to open in 2014 or later. |
| |
(b) | Capital lease payments include $3,740 million related to options to extend lease terms that are reasonably assured of being exercised and also includes $80 million of legally binding minimum payments for stores opening in 2014 or later. |
| |
(c) | Calculated using the interest rate at inception for each lease. |
| |
(d) | Includes the current portion of $77 million. |
